Diesel Prices Are Once Again Trying To Lead The Energy Complex In A Rally After 2 Days Of Heavy Selling
Diesel prices are once again trying to lead the energy complex in a rally after 2 days of heavy selling for gasoline and oil prices as both fuel supplies and inflation continue to move somewhere between bad and worse. The big news that appears to have sparked a 25 cent bounce in distillates the past couple of days was that Ukraine was cutting off nearly 1/3 of Russian natural gas shipments, at least in part because Russia is lobbing bombs at the facilities pumping that fuel.
While equity and Energy prices were seeing strong gains in the overnight session, they’ve pulled back sharply this morning following the April CPI reading that showed inflation is holding near a 40 year high, and will give the FED plenty of reasons to hike rates and stop printing money. If you’re looking for good news, you might say that April’s inflation reading of 8.3% for the year wasn’t as bad as the 8.5% estimate in March. Then again, if you read through the release and realized that it was a drop in retail gasoline prices that accounted for a big part of that decline, you can already guess how May’s numbers will look now that gasoline prices have surged to new all-time highs.
The EIA’s monthly report reduced estimates for global crude oil and fuel production, noting the extreme levels of uncertainty caused the war and fuel embargoes. The report did however suggest that global inventories will be able to build in the back half of the year as new supply sources return from their COVID-induced shutdowns.
A Reuters article this morning highlights the steep discounts that Russian diesel cargoes are trading for as most European nations that are desperate for distillates still refuse to take those supplies. Meanwhile, the premium for prompt barrels in NY Harbor is several times larger than the premium paid for non-Russian diesel in Europe, which suggests enough of the Russian barrels are still making it through the EU loophole while the US is struggling through the tightest supply ever on the East Coast.
Based on the pullback in prices in all US markets outside of the East Coast, it seems like just a matter before we see a collapse in values of $1/more in the NY Harbor, but so far this week we are seeing the opposite as premiums surge to $1.40 over futures even while most other US markets have shifted to discounts.
The API reported small inventory builds across the board in its weekly report yesterday, which offers little relief to markets around the country that have seen terminal outages become commonplace. The DOE’s weekly report is due out at its normal time this morning.
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Week 17 - US DOE Inventory Recap
The Energy Complex Is Trading Modestly Lower So Far This Morning With WTI Crude Oil Futures Leading The Way
Energy Futures Are Drifting Quietly Higher This Morning
Refined Products Holding Close To Break Even While Oil Prices Are Losing Just Under 1%
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Week 17 - US DOE Inventory Recap
The Energy Complex Is Trading Modestly Lower So Far This Morning With WTI Crude Oil Futures Leading The Way
The energy complex is trading modestly lower so far this morning with WTI crude oil futures leading the way, exchanging hands $1.50 per barrel lower (-1.9%) than Tuesday’s settlement price. Gasoline and diesel futures are following suit, dropping .0390 and .0280 per gallon, respectively.
A surprise crude oil build (one that doesn’t include any changes to the SPR) as reported by the American Petroleum Institute late Tuesday is taking credit for the bearish trading seen this morning. The Institute estimated an increase in crude inventories of ~5 million barrels and drop in both refined product stocks of 1.5-2.2 million barrels for the week ending April 26. The Department of Energy’s official report is due out at it’s regular time (9:30 CDT) this morning.
The Senate Budget Committee is scheduled to hold a hearing at 9:00 AM EST this morning regarding a years-long probe into climate change messaging from big oil companies. Following a 3-year investigation, Senate and House Democrats released their final report yesterday alleging major oil companies have internally recognized the impacts of fossil fuels on the climate since as far back as the 1960s, while privately lobbying against climate legislation and publicly presenting a narrative that undermines a connection between the two. Whether this will have a tangible effect on policy or is just the latest announcement in an election-yeardeluge is yet to be seen.
Speaking of deluge, another drone attack was launched against Russian infrastructure earlier this morning, causing an explosion and subsequent fire at Rosneft’s Ryazan refinery. While likely a response to the five killed from Russian missile strikes in Odesa and Kharkiv, Kyiv has yet to officially claim responsibility for the attack that successfully struck state infrastructure just 130 miles from Moscow.
The crude oil bears are on a tear this past week, blowing past WTI’s 5 and 10 day moving averages on Monday and opening below it’s 50-day MA this morning. The $80 level is likely a key resistance level, below which the path is open for the American oil benchmark to drop to the $75 level in short order.
Click here to download a PDF of today's TACenergy Market Talk.
Energy Futures Are Drifting Quietly Higher This Morning
Energy futures are drifting quietly higher this morning as a new round of hostage negotiations between Israel and Hamas seem to show relative promise. It seems the market is focusing on the prospect of cooler heads prevailing, rather than the pervasive rocket/drone exchanges, the latest of which took place over Israel’s northern border.
A warmer-than-expected winter depressed diesel demand and, likewise, distillate refinery margins, which has dropped to its lowest level since the beginning of 2022. The ULSD forward curve has shifted into contango (carry) over the past month as traders seek to store their diesel inventories and hope for a pickup in demand, domestic or otherwise.
The DOE announced it had continued rebuilding it’s Strategic Petroleum Reserve this month, noting the addition of 2.3 million barrels of crude so far in April. Depending on what the private sector reported for last week, Wednesday’s DOE report may put current national crude oil inventories (include those of the SPR) above the year’s previous levels, something we haven’t seen since April of 2022, two months after Ukraine war began.
The latest in the Dangote Refinery Saga: Credit stall-out, rising oil prices, and currency exchange.
Click here to download a PDF of today's TACenergy Market Talk.